The True Cost of Equipment Downtime

Equipment downtime causes a ripple effect, hindering other critical functions and limiting profitability. As part of a recent report, IT research firm Ponemon Institute identified the 10 primary categories of expenses associated with unplanned equipment downtime. The list below accounts for all direct, indirect and opportunity costs and illustrates just how catastrophic unexpected asset failure can be.

1. Detection Costs

The detection cost factors in expenses related to the initial discovery and investigation of the incident. This includes the time, resources and personnel required to identify and diagnose the issue and correct it.

2. Containment Costs

Expenses associated with the activities that enable the company to reduce the impact of the unexpected failure and prevent the malfunctioning equipment from affecting other assets are considered containment costs. This category also includes the cost of implementing temporary fixes until a permanent solution can be found.

3. Recovery Costs

Recovery costs are costs associated with restoring business operations to their baseline. For example, in a situation where a company needs to recover data lost as a result of the failure, the costs would include the time employees must dedicate to locating and installing backups.

4. Ex-post Response Costs

“Ex-post” is Latin for “after the fact.” These costs include all incidental expenses related to the disruption itself and subsequent recovery. Some examples of ex-post response costs are legal expenditures and regulatory fines.

5. Equipment Costs

Equipment costs are costs related to repairs and replacements, including parts and delivery. This also includes the cost to fix damages to other assets that occurred as a result of an asset’s malfunction or failure.

6. IT Productivity Loss

In the event of a technology-related issue, IT productivity loss includes the financial impact of the IT team’s inability to complete their regular duties, as well as any overtime required to resolve the issue.

7. User Productivity Loss

Similar to IT productivity loss, user productivity loss includes the cost of lost time from employees who are unable to perform their job as a result of the equipment downtime. It also includes the cost of any overtime needed to compensate for the lost output.

8. Third-Party Costs

Third-party costs are any expenses associated with the use of contractors, consultants and other specialists the company must bring in to resolve the issue. If the problem is serious enough, third-party costs would not only include the expenses of outside parties who assisted with the equipment but also the costs of hiring a mediator or PR firm to manage the fallout.

9. Lost Revenue

This is the total revenue lost as a direct result of the equipment downtime. Depending on the industry and the type of asset failure, this could include purchases customers could not complete, products that could not be manufactured or sales contracts that could not be closed.

10. Business Disruption

This is the total cost of the equipment downtime, including lost revenue, lost productivity, the cost of recovery, damage to the company’s reputation, missed deadlines, customer churn and any long-term damage to business systems and processes.

How to Avoid Unexpected Equipment Downtime

The most effective way to prevent unplanned asset malfunction or failure is to develop a preventive maintenance strategy. Preventive maintenance enables you to proactively optimize the operation of all assets, from HVAC and lighting systems to printers and breakroom appliances.

There are five steps to executing a preventative maintenance strategy:

Define the problem

Measure current asset performance to establish a baseline

Identify and explore possible causes of the problem

Analyze the best approach

Calculate how well your current approach has been working and adjust as needed